1. Business
  2. Economics
  3. dirt diggers dd is an excavating firm that excavates roadside...

Question: dirt diggers dd is an excavating firm that excavates roadside...

Question details

Dirt Diggers (DD) is an excavating firm that excavates roadside ditches for laying drainpipe. Its output follows the following production function: Q = 10L - .1L^2 where L denotes labor hours and Q the length of the ditch in meters. DD hires labor at the going wage rate of $18 per hours. DD’s fixed cost is $40.

(a) DD has received an offer to excavate 250 meters for a lump sum price of $750. Should it accept the offer? Explain with appropriate calculations.

(b) Suppose instead of the previous offer DD is offered as much or as little excavation work at a price of $3.00 per meter dug. Should it accept the offer? If it does, calculate its profit and the optimal (profit maximizing) output (meters dug) and labor usage.

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution